Andrew Thomas is Executive in Residence at the Energy Policy Center of the Levin College of Urban Affairs at Cleveland State University.

The Urban College at Cleveland State University will release a book this spring called “The Road Through the Rust Belt: From Preeminence to Decline to Prosperity,” edited by Prof. Bill Bowen and published by Upjohn Institute Press. The book will contain analyses of what Ohio and other Great Lakes regions might do to emerge from the industrial decline and urban pathologies they have endured since the 1970s. I am contributing the chapter on energy policy.I began by writing what I thought was self-evident: The energy crisis of the 1970s was the catalyst for the Midwest sliding into a long economic slump. But as I discussed this with my editor, I realized I did not have any data to support my contention — just my sense that it must be so, from having lived through it.Now I do. PNC Bank energy analyst Jim Halloran recently sent me an article by energy economist Gail Tverberg called “High Price Fuel Syndrome” that explains how high energy prices can devastate an economy and shows how dramatic the problem was in 1978.Ms. Tverberg points out that oil prices hovered around $20 per barrel (in 2011 dollars) for some 70 years until the 1970s, whereupon it rose sharply and suddenly to a peak of $100 per barrel (2011 dollars) around 1978.

Ms. Tverberg describes the effects of the “high fuel price syndrome” on the economy as follows: “If consumers are required to pay more for a necessity, they will cut back on discretionary goods and services.” Rising energy cost, especially for oil, causes rising costs for necessities. This includes food, commuting, heating and electricity, among others.With fewer discretionary dollars available to spend, businesses suffer reduced sales, leading to layoffs, cutbacks and follow-on effects. Government experiences rising costs related to unemployment benefits, loan defaults and its own energy consumption, along with deceasing tax revenues due to job losses, declining commerce and falling property values.Those of us who lived in Ohio during the 1970s can recall vividly the difficult adjustments required. My father was a schoolteacher in Ashtabula. We traded in the Colony Park wagon for a VW beetle, gave up our summer vacations and other luxuries, and shivered through many long, harsh winters. Like many from Ohio, I moved to the Gulf Coast to get a job, where I stayed for 20 years.So why is 1978 relevant today? Today, oil once again is trading for around $100 per barrel (2011 dollars). And as a result, we appear to be facing a similar threat to our economy that we faced in 1978.But there are two major reasons why things are different today. First, with the development of the Utica shale, Ohio may soon become an oil-producing state. While this is little comfort to Ohio consumers who have to pay the high prices, it apparently creates enough local jobs, wealth and taxes that the pain is offset in part.The U.S. Department of Energy apparently reached this conclusion in recommending that the United States allow natural gas exports. In a recent report, the department concluded that exporting natural gas would be a net gain to the U.S. economy, even though it would mean a rise in U.S. natural gas prices, which would in turn have a chilling effect on domestic manufacturing. The second, and more important, reason why things today are different from 1978 is that natural gas prices are low. Historically, oil and natural gas prices have tracked each other. That was certainly the case in 1978, when Ohio faced natural gas prices that had risen tenfold in just seven years. Today, however, natural gas prices are low while oil prices have remained high.This is particularly good news, because we now also rely a great deal more on natural gas than we did in 1978. Natural gas has since replaced oil as the fuel of choice for both heat and power generation. And it is beginning to replace oil as the fuel of choice for certain transportation sectors, such as trucking fleets. This significantly mitigates the threat of high oil costs to Ohio's economy.So what, then, are the relevant energy policies that could pave the “road through the Rust Belt?” I won't divulge my entire chapter from our book, but obviously, enabling strategies for the safe development of the Utica shale will be among some of the more important energy policies for Ohio. This has the dual advantage of generating economic development while keeping natural gas (and possibly oil) prices low. What is less obvious, however, is that enabling the development of an international market for our natural gas will be a “net gain” for the Rust Belt. Ohio is not like Texas was in the 1970s; we don't have many major oil and gas producing or service companies headquartered in Ohio that would benefit from higher natural gas prices. Moreover, our economy continues to rely disproportionately on manufacturing, which will suffer from high gas prices. Unfortunately, we may not have the luxury of taking a wait and see approach to this. We can't go back to the days of flaring surplus natural gas produced as a byproduct of oil production. And we also can't allow natural gas companies to make major long-term investments in an export business only to later pull their license to export when it is no longer convenient for us.It appears that our best hope is that the cost advantages inherent to delivery to a local market, along with an ongoing abundant supply, will ensure that natural gas prices remain low even as an international market develops for our domestic natural gas.

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